AEC 2015

Threats and Opportunities for the businessman in Thailand

JFCCT AEC Committee March 2012

Joint Foreign Chambers of Commercein Thailand

OutlineOutline JFCCT ASEAN Agreements and background AEC Agreement

• Goods• Investments• Capital• Labour• Services

Roadmap Status of Changes Challenges and Threats Opportunities Next Steps for JFCCT Questions

JFCCTJFCCT 27 Members Advocacy for

JFCCT Members Presidents Council Committees

• Labour• ICT• Tourism• Legal• AEC

• Meet with Thai Government Departments– MOC– BOI– Revenue– Customs– Labour– Immigration– Land

• Wins:– Tax laws changing– Customs laws– Foreign Dominance– 90 Day Reporting– Residency Permits– Views are heard

ASEAN AGREEMENTSASEAN AGREEMENTS

Introduction to ASEAN Introduction to ASEAN Association of Southeast Asian NationsAssociation of Southeast Asian Nations

• Established on 8 August 1967 in Bangkok, Thailand

• ASEAN Declaration (Bangkok Declaration) signed by the Founding Fathers of ASEAN (Indonesia, Malaysia, Philippines, Singapore and Thailand)

• Additional countries joined as follows:- Brunei Darussalam: 7 January

1984- Vietnam: 28 July 1995- Lao PDR and Myanmar: 23 July

1997- Cambodia: 30 April 1999ASEAN 6 + CLMVASEAN 6 + CLMV

ASEAN Community : ACASEAN Community : AC

ASEAN Charter

• Signed on 20 November 2007 and entered into force on 15

December 2008

• Enhances regional cooperation and integration through the

establishment of three pillars

• Instrument providing a legal framework for ASEAN to be a

more rules-based, effective and people-oriented

organization

3 Pillars of ASEAN Community 3 Pillars of ASEAN Community

ASEAN Cooperation

• Political Cooperation

• Social Cooperation

• Economic Cooperation

ASEAN Community : 3 PillarsASEAN Community : 3 Pillars

• Rules-based community of

shared norms and values

• Cohesive, peaceful, stable,

resilient region with shared

responsibility for

comprehensive security

• Dynamic and outward-looking

region in an increasingly

integrated and interdependent

world

• Human development

• Social welfare and protection

• Social justice and rights

• Ensuring environmental sustainability

• Building an ASEAN identity

• Single market and

production base

• Competitive economic

region

• development

• Integration into global

economy

Deepening and broaden economic Deepening and broaden economic integration in ASEANintegration in ASEAN

•Coherent approach towards

external economic relations

•Enhanced participation in

global supply networks

ASEAN Economic Community ASEAN Economic Community

ASEAN v Europe?ASEAN v Europe?

Key Differences with EuropeKey Differences with Europe ASEAN Est. 1967 (BKK Treaty of Amity &

Cooperation) Stop Communism, put an end to

Confrontations Message: “Leave me alone to run

my country” Provide forum to deal with territorial

and political disputes between SEA nations

Allow leaders to build their own country model without outside interference

Hope that shared economic interest erase old animosities

Bigger clout and footprint with the West, China and India

EEC Est. 1957 (Treaty of Rome) To make sure there would never be

another war Message: “Make sure no one is

ever left alone again” Governments gave up some of their

authority to Brussels (agriculture, transport, trade, etc)

Meant to foster economic cooperation & secure lasting democratic peace

Ensure free movement of people, capital, goods and services

Leading eventually to Customs-, Monetary- and Political Union

Aim of ASEAN was to ensure non-interference, aim of EU was close integration to ensure inter-dependence

AEC 2015 ELEMENTSAEC 2015 ELEMENTS

Core Elements of AEC to become Core Elements of AEC to become Single Market and Production Single Market and Production

BaseBase Free flow of goods

Free flow of services

Free flow of investment

Freer flow of capital

Free flow of skilled labor

Free Flow of GoodsFree Flow of Goods The ASEAN Free Trade Area (AFTA)The ASEAN Free Trade Area (AFTA)

ASEAN Trade in Goods Agreement (ATIGA)

governs the ASEAN Free Trade Area for intra-

ASEAN trade in Goods

Elimination of tariff barrier under tariff reduction program

Elimination of quantity restrictions and non-tariff barriers

Only ASEAN’s products that are directly consigned

within the region will qualify for benefits of AFTA

The ASEAN Free Trade Area (AFTA) has now been

virtually established.

-ASEAN-6 : more than 99% of tariff lines have 0% tariff in

2010

-CLMV will reduce tariff to 0% by 2015

Free Flow of Investment Free Flow of Investment Intra-ASEAN investment governed by ASEAN

Comprehensive Investment Agreement (ACIA) 4 main pillars Liberalization, protection, facilitation

and promotion.

Objectives enhancing ASEAN’s competitiveness attracting foreign direct investment (FDI) increasing intra-ASEAN investment.

ActionsExtend non-discriminatory treatments - National Treatment to investors from other members- Most-Favored nation treatment must be respectedReduce and eliminate restrictions to entry for investmentsReduce and eliminate restrictive investment measures and other impediments including performance requirements

Free Flow of CapitalFree Flow of Capital Strengthening ASEAN Capital Market Development and

Integration.• Achieve greater harmonisation in capital market standards

in the areas of offering rules for debt securities, disclosure requirements and distribution rules;

• Facilitate mutual recognition arrangement or agreement for the cross recognition of qualification and education and experience of market professionals;

• Achieve greater flexibility in language and governing law requirements for securities issuance;

• Enhance withholding tax structure, where possible, to promote the broadening of investor base in ASEAN debt issuance; and

• Facilitate market driven efforts to establish exchange and debt market linkages, including cross border capital raising activities.

Free Flow of Skilled Labor Free Flow of Skilled Labor Greater mobility of services Greater mobility of qualified service professionals in

the region by accepting common standards of some professionals

First mutual recognition arrangements are for:1. Medical practitioners2. Dental practitioners3. Accountancy services4. Engineering services5. Nursing services6. Architectural services7. Surveying qualifications

SERVICES (AFAS)SERVICES (AFAS)

Free Flow of Services Free Flow of Services No restrictions on ASEAN services suppliers in providing services and

in establishing companies across national borders in the region, subject to domestic regulations.

Eliminates restrictions to trade in services among ASEAN countries to improve the efficiency and competitiveness of ASEAN services suppliers.

Liberalization of services has been carried out through rounds of negotiation mainly under the Coordinating Committee on Services.

Recognition of professional qualifications by recognizing mutual recognition arrangements (MRAs)

Substantial removal of all restrictions on trade in services (Priority sectors are air transport, e-ASEAN, healthcare, tourism and logistic)

Negotiation of some specific services sectors such as financial services and air transport are carried out by their respective Ministerial bodies.

SOUNDS GOOD ….SOUNDS GOOD ….BUT JUST LIKE MANY FACEBOOK RELATIONSHIPS BUT JUST LIKE MANY FACEBOOK RELATIONSHIPS

……..……..

IT’S COMPLICATEDIT’S COMPLICATED

Negotiations ProcessNegotiations Process Foreign Affairs Negotiated ASEAN for Thailand Handed Internal changes to Ministry of Commerce

Department of Trade Negotiations DTN responsible to get changes made DTN have no authority within other ministries …. Stakeholders? = many! Private sector discussions – Thai and Farang FTA and other negotiations ongoing Slow progress Compensation/Adjustment for local business?

Service Sectors and Supply Service Sectors and Supply Business services Financial Professional services Construction Distribution Education

Environmental services Healthcare Maritime transport Telecommunication Tourism Other

Cross-Border Consumption Abroad Commercial Presence Movement of Natural Person

Relevant laws and regulationsRelevant laws and regulations• Land code of Thailand• Foreign Business Act• Royal Decree Prescribing Works

Relating to Occupation and Professional in which an Alien is prohibited to Engage

• Economic Need Test/Labor Market Test

• Immigration Regulations• BOI Investment Policies• Bank of Thailand Prudential

Measures

• English translations for these Acts, Notifications and Regulations:• www.krisdika.go.th• www.lawreform.go.th

• Ministry of Commerce• Ministry of Foreign

Affairs• BOI• Professional Councils• Ministry of labor• Immigration Bureau• Ministry of Finance • Bank of Thailand • Ministry of Transport• Other line Ministries

specific to services sub-sectors

Roadmap/Timeline Roadmap/Timeline

Timeline Timeline

Roadmap and status of changes in the Thai government

What will happen from now toward 2015 ?

Timeline for Services LiberalizationTimeline for Services Liberalization

SECTORS TARGETSSECTORS TARGETS2008 2010 2013 2015

e-ASEAN, healthcare tourism e-ASEAN, healthcare tourism servicesservices 51% 70%

Logistics Logistics 51% 70%

ConstructionConstruction 51% 70%

Others Others 51% 70%

Foreign (ASEAN Citizen) ownership limitsForeign (ASEAN Citizen) ownership limits

Status?Status?

Free flow of goods Advanced Free flow of investment Commenced/problems Freer flow of capital

Commenced/caveats Free flow of skilled labor

Commenced/caveats Free flow of services Behind

Services falling behind…Services falling behind…

In some cases changes can be made using ministerial regulation or work-arounds

But in many cases Legislation needs to be changed

Political issues and focus? Votes and interests? Competition concerns

Challenges and Threats Challenges and Threats

Is Thailand up to it?Is Thailand up to it?

Competition from new entrants to the market• Bigger with more financial capability• Better technical products/service

systems• Some may have Most Favoured Nation

status• May get support from home countries

Banking or Finance Specialist Employees/Managers easier to

bring in

• More experience competing already

What might happen?What might happen? English Language skills problems Labour shortages get worse?

• Workers go home to CLM• Good workers go to higher salary paying countries

Doctors, engineers etc Labour rate increases

• more than they have already! Delays in implementation create a “shock”

rather than a “planned” process Thailand could be seen as lower value

• Agriculture• Factory workers• Tourism based • Low Cost only

Is ASEAN Structure ready?Is ASEAN Structure ready?

Lack of key government leadership and infrastructure for the ASEAN Secretariat• 10 Ambassadors whose only job is

to say “No”• Enforcement of the Treaty and

agreements Currently no “flagship project”

uniting ASEAN

ASEAN Harmonized?ASEAN Harmonized? Exchange Rates Standards across many industries University degrees Compliance for listed companies Telecommunications standards (for the business user

as well as within) Stock Market issues (such as Prospectus requirements,

2nd listing, taxation, disclosure rules, Index setting) Taxation variations and double tax treaties Competition Law Accounting and reporting dates and periods Emissions standards, electrical standards and the use

of alternative fuels Payments processing

ASEAN – is it united?ASEAN – is it united?

Big Differences :Democratic Capitalism v CommunismBuddhist, Islamic and ChristianStages of Development

• Education• Health• Corruption• Technology

Other Countries…. Other Countries…. Malaysian International Trade Ministry 2011 ….

Malaysia stands to benefit the most from services liberalisation in ASEAN as Malaysia has the capacity to tap into the opportunities offered in the regional marketMalaysia undertakes to bind commitments of unilateral liberalisation of its services sectors under AFAS so as to provide transparency and predictability to investors and the business community attract investments, specialised expertise and technology into the (targeted) sectors;Reap the benefits of being the ‘first mover’Create opportunity for Malaysian companies to expand out of domestic market and enter into the regional markets or global markets which are more open; andInject competitiveness into the services sector in Malaysia.

Malaysia signed FTA deal with Australia this week. Included was the chance for Aussies to own 70% of Malaysian services company now.

Opportunities Opportunities

Ideas being discussedIdeas being discussed

Stock Markets?• One new ASEAN market• Joint Exchanges• Dual Listing• Or … Do nothing

ASEAN Bonds Single Customs window or system Single Tourism Visa “Flagship project”??

Does Money grow on Trees? Does Money grow on Trees? Opportunities for Thais to expandOpportunities for Thais to expand

Thai Companies can sell to 600 million people (x 10)

Can own 100% of companies in other ASEAN countries

Should be treated equally as local companies/people

Moving goods should be easier Access to capital markets and repatriation

of profits and dividends FTA’s will likely become ASEAN negotiated Tax opportunities

Pot of Gold in Thailand?Pot of Gold in Thailand?

ASEAN citizens and companies should be able to own 70% (maybe more) of services companies

May be able to bring in workers easier

Some admin processes may be improved• Work Permits, Visa’s, Customs, Moving

funds Likely to be many non-ASEAN

companies looking for entry over the next 3 years

QuestionsQuestions

Next Steps for JFCCT AECNext Steps for JFCCT AEC

Provide Information to the JFCCT Member companies

Discuss implementation of changes Try to influence government departments

• smooth transition • well thought out processes • general improvements for the longer term

benefit of Thailand• encourage take up of ideas

Need questions, issues and ideas from members

European v ASEAN Current view is “business threat” and fear

tactics Should focus on advantages and opportunities

for Thai citizens and consumers• Access to better quality goods and services• Lower prices• Employment opportunities• Better standard of living

Examples of open economies:• Australia/New Zealand• US• Hong Kong• Singapore

Last Thoughts -What’s the target?Last Thoughts -What’s the target?